MSCI warning a 'short-term shock', Indonesia central bank chief reassures businesses

Jakarta - MSCI's warning of potential downgrade for Indonesia's stock market was a short-term shock, according to the country's central bank governor. Speaking at a business event on Thursday, Bank Indonesia Governor Destry Damayanti reassured that Indonesia would recover once the issues causing concern were addressed. The warning comes after MSCI suggested Indonesia's stock market could be downgraded to standalone status due to opaque ownership and alleged coordinated trading.

This would be a more severe downgrade than the January warning of demotion to frontier class. The market turmoil caused by the warning has resulted in the main index falling about 40% this year, making it the worst-performing in the world. Speaking at the event, which was attended by major business groups, Destry said the stock prices have become cheap and even reached unreasonable levels for a country like Indonesia.

She believed that improving transparency through reforms introduced by the Financial Services Authority (OJK) would address MSCI's concerns. MSCI's warning has raised concerns among business leaders, with President Prabowo Subianto's brother, businessman Hashim Djojohadikusumo, describing it as a very, very serious issue that could trigger further capital outflows and weaken the rupiah exchange rate.

The rupiah was trading around 18,100 per US dollar, already near a record low. Business leaders have warned that a weaker rupiah could have a significant political impact. Despite the warning, Destry said the central bank would remain focused on stabilising the rupiah.